2008-2009 KFC sales figures mislead investors

Let me just elaborate on a short post I made at Shareinvestor.co.nz regarding Restaurant Brands [RBD.NZ] results to the year ended 28 February 2009.

It is something I have mentioned many times before but it must be stressed once again because Restaurant Brands shareholders and prospective investors in the company must be given the full picture when it comes to RBD managements disclosure over their KFC sales.

The "record" $211 million of sales reported in today's result for KFC is only a record in terms of 2009 dollars. KFC are actually serving up less chicken to fewer customers.

Their best listed year was in 1997 where they did $172.3 million in KFC sales. That is because of accumulated inflation at a very conservative 3% annually over the last 12 years amounts to 36%.

36% inflation means in 2009 dollars RBD would have to sell $62 million more chicken just to match the record made in 1997.

$211 million is a long way from the figure they need to make, of $234.32 million, just to match the 1997 record.

I am not an accountant and nor do I think I need to be but if such emphasis of "record sales" is placed on a figure by RBD management to gain market approval that the expenditure of 10s of millions of shareholder funds on KFC refurbishment in order to attain those sales then that figure should be clearly accurate and take inflation into account. That is simply not the case here.

Granted one can do the math oneself to come up with relative figures and compare year by year sales but having said that, to use current sales figures as a tool to push further shareholder expenditure must be justified to the nearest decimal point.

RBD's figures therefore do not pass this test and furthermore for analysts and business reporters to accept this without question is surely remiss to some extent.

Still my record with this company probably goes back longer than many on the RBD board or those professional stock analysts in their professional capacity.

Once again I am not an accountant but I would like to see inflation taken into account when businesses do their books, at lease an annotation in the audited reports of what the inflation rate was in the last year so a stockholder or a prospective stockholder can make a fully accurate comparison before they decide to buy, or not as the case may be.

Just to end on a positive note, the company is negotiating with YUM! over the Pizza Hut franchise and it is expected that this will allow RBD management to divest individual Pizza Hut stores to owner operators.

This is one thing I have argued for Pizza Hut for years that individual ownership makes for a better run business because owners have skin in the game. Pizza Hut's competitor Dominos have this arrangement and they are currently experiencing records sales.

This solution will be at once beneficial for RBD because Pizza Hut loses money and for the Pizza Hut brand in New Zealand which will be able to rejuvenate itself under an alternative ownership structure.

RBD shares were up 1c to 86c today on reasonable volume.

Restaurant Brands @ Share Investor

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Discuss RBD @ Share Investor Forum




c Share Investor 2009

Domino's Australia dominant in Australasia

Domino’s Pizza [DMP.AX] is the largest pizza chain in Australia, in terms of both store numbers and sales. It is also the largest franchisee for the Domino’s Pizza brand in the world.

Domino’s Pizza Australia now encompasses five countries, with more than 720 stores employing approximately 14,000 people and making more than 60 million pizzas a year.

The Domino's brand is owned by Domino's Pizza, Inc [DPZ.NYSE] a listed US company.






Domino's shares were down by 29c or 8.29% to AU$3.21 on the ASX today. Probably due to a slump in sales for the year. Profit however, was up by almost 30% compared to the previous year.


While Australian based Domino's dominate the New Zealand and Australian pizza market, it is leaving its competition in the dust.

Domino's total same-store sales grew 4.1 per cent over the last year, while its main competitor in New Zealand-Restaurant Brand's [RBD.NZ] run Pizza Hut-same store sales declined 7.1% for the 12 weeks ending 19 May 2008. That quarters total sales were $15.2 million, a decrease of 13.3% over the prior period.

As a customer one can tell the different immediately from the Domino's vs Pizza Hut experience.

Domino's generally has fast efficient friendly service, excellent pricing and a good line of pizza offerings and toppings Their pizzas and marketing are well excecuted.

It is the opposite at Pizza Hut; slow, rubbish service, unfriendly, extremely bad marketing and a disappointing menu and quality of food.

Apart from the differences above Restaurant Brands manage its pizza brand badly. I suspect much direction is from head office and the local input from sub par managers to bolster young uninterested staff to treat customers better is clearly missing.

Domino's New Zealand stores, which number 72 and will max out at 85, are franchisee run while Pizza Hut are company managed in NZ with a parent franchiser YUM! Brands Inc [YUM], based out of the US.

Having the owner running the business at store level is the important difference and another reason why Domino's will continue to kick Pizza Hut around in the coming years

The ASX-listed company yesterday announced net profit after tax for the year ending June 29 was A$11.8 million ($14.42 million), up from A$9.1 million last year.

The Australia-New Zealand market revenue for the group - which has outlets in New Zealand, Australia, France, Belgium and the Netherlands - fell from A$180.4 million to A$160.7 million.

Chief executive Don Meij said he was confident New Zealand operations would continue to perform strongly, regardless of the current recession.

"Pizza's very resilient in economic downturns. We think we're going to ride through whatever economic challenges are out there."

Domino's Australia is a well run company and a must for investors who want exposure to a listed Australasian fast food company but don't have the patience for the slack management at Restaurant Brands to get things right.

Related Share Investor reading

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Pizza franchise operator seeks shelter of Chapter 11 bankruptcy. (Karam Enterprises Inc., Domino's Pizza franchisee) (company profile): An article from: Fairfield County Business Journal by Joan Stableford
Buy new: $5.95
Available for download now

c Share Investor 2008

Burger Fuel leaves investors hungry

Burger Fuel's gourmet burgers are delicious, ample, fresh and have plenty of filling. It is a shame that its latest profit results are meagre, lacking in substance and leave investors hungry.

Too negative?

Just look at the revenue for the last 9.5 month reporting period. Around NZ$4.7 million. This is derived from a 10% cut out of Franchisee's turnover, which probably totaled around NZ$15 million for that period. 4% of that revenue was used for marketing of the company. The balance of the revenue comes from a construction management fee, a franchise territory fee, a franchise training fee and revenue from company owned stores.

On this revenue Burger Fuel Worldwide [BFW] reported an audited loss of $2,149,067 for the nine-and-a-half month period to 31 March 2008.


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The IPO raised around $8 million dollars cash in July 2007, with $3 million contributed from the company founders because the IPO flopped, and as of 31 March 2008 it had chewed through almost $5 million of it. Granted there have been costs involved in opening a company owned store in Sydney and costs establishing the company as a franchisor to the chain of owner operator stores but as a franchisor Burger Fuel's store opening costs should be largely covered by franchisee fees and contributions as outlined above.

What it looks like is that there will be more capital needed in 12-16 months to continue company expansion.

As an investor and business owner myself, I like to be making money from my enterprise from day one. Of course there are capital costs in a "start up" such as BFW but as the listed life of this company is now almost a year old, the promise of profit doesn't look good as the company expands.

The company should be making a small profit already, excluding the almost $1 million cost of the IPO, but one of the answers why they might not be could lay here:

This included an additional elected marketing spend in NZ of $339,304 over and above the franchisee marketing budget for the period.If the franchise model is a sound one as the company expands then why would the franchisor spend money above and over the amount the franchisee pays to do the marketing? Should the marketing fee be bigger given that $339,304.00 is not a small amount of money when you consider the small revenue base and small number of stores at present?


A big worry is the progress of the brand in Australia


BurgerFuel Australia unaudited system sales for the period 1 April 2007 to 31 March 2008 are $1,453,892.


With two stores opened in OZ, one in Kings Cross opened since October 2007 and an established one in Newton, the revenue of the two combined of only $1.45 million is tiny.

An outlet based in Sydney's Kings Cross should be doing well north of A$2 million per year to cover the high costs of being based in that area. Rents are high and as this store is company owned it will have to do much better as to not continue to be a drain on franchisor company profit.

All is not lost though!

One small promising light shines from the deserts of Dubai where BFW signed a Master Franchisee agreement in May with Al Khayyat Investment Group Investments LLC to open a store there latter in the year.

The financial details of that deal are sketchy but we all wait in hope for good sales figures for the first few months to help give investors an indication if the concept will fly in a market already saturated with manifold more times competition for the disposable entertainment buck than the company faces in Australasia.

Burger Fuel reminds me of the 42 Below Vodca company, which was listed a few years back. It had a very strong brand and loyal following and struggled initially because it didn't have the funds or systems to take the company and its product to the world. It never made money but was eventually sold to Bacardi for NZ$138 million in 2006 and they had the backing and moola to take the brand somewhere.

Is Burger Fuel destined to be bought up by a YUM! or one of the many worldwide operators of fast food brands?

You never know, Josef Roberts, a director of Burger Fuel, did just that when he started up the Australasian Red Bull company and then sold it to the parent .

Judged by the latest profit announcement this could be Burger Fuel investors only hope for a return on their money.


Related Links

Burger Fuel website



c Share Investor 2008

Restaurant Brand's gives KFC a push

It will seem strange to regular readers of this blog for me to be praising Restaurant Brand's [RBD] management but after some reasonable on site research of one of the company's brands, KFC, I do believe they might have got one aspect of the company almost right.

Restaurant Brands is the franchisee operator of KFC, Pizza Hut and Starbucks and has had a very chequered operating past since listing in 1997. Sales have been declining, levels of service poor and menu and food quality dubious at the best of times. Profit and revenue have also consistently fallen in the last decade as a result of the poor management.

There has been a 2 year focus on KFC to resurrect the company's only profit maker. Millions have been spent to remodel the 89 store chain with new menu items to give the image of KFC and the Colonel's old deep fried chicken a healthier look and judging by my own survey of a couple of Auckland's North Shore stores, Takapuna and Browns Bay, the extensive rejig of the menu seems to be keeping declining customer numbers at an even keel.

The choice of salads, burger meals, various new types of snack foods and smaller chicken pieces from the old KFC menu make for more choices for customers but management risk diversifying too much and alienating their core customer (thats me folks) who still comes for the fried chicken, if they go further.

Stick to what you know guys and don't try to reinvent too much. McDonalds have just successfully redefined their menu in a healthier way, while adding a large chicken menu to their roster and too many similarities between the 2 chains chicken products should be avoided at all costs. KFC's main point of difference, and it has been that way for nearly 40 years in New Zealand, is their 11 herbs and spices recipe. Don't kill the very chicken that lays the golden stuff !

Related Share Investor reading

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Russel Creedy, who was appointed as CEO in September 2007, has made some good moves since his appointment and the continued development of KFC from previous management head Vicki Salmon has stemmed the previous hemorrhaging of the KFC unit.

What Creedy must do now though is consolidate his relative success at KFC and sell the loss making Pizza Hut New Zealand while there is someone willing to buy it.

Starbucks, while still growing revenue, mostly from inflation, is nonetheless still losing money overall and a sale back to the franchisor would be the best for all participants.

RBD management don't have the depth of expertise to manage 3 brands to the maximum benefit of their shareholders, and as proven ever so slightly so far, their concentration of efforts seems to be paying off at KFC.

Related links

RBD New Zealand
KFC NZ
Yum ! RBD's franchisor

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Share Investor Business News- Get more business news
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c Share Investor 2008

Burger Fuel management cagey over company progress

Further to the story about Burger Fuel Worldwide[BFW] signing a master franchise deal with a business in Dubai, I mentioned I was going to ask Josef Roberts, Executive director of the company a couple of questions to flesh out the details of the deal to the market and his investors.

He was very accommodating before the July IPO, granting me an email interview about where the company was going, in some detail.


Here were the questions I put to him yesterday


Hi Josef, I hope you are well.

Interesting announcement today re the Dubai franchise deal. It took me by surprise.

On that note, I wonder if you could inform my readers as to some of the finer points of the deal and some of the reasons why you took the business across the other side of the planet.

Assuming you could answer some questions because the market is speculating.


1: why are you going to develop a new overseas market before establishing the current Australian one?

2: Did the Dubai company approach BF or you them?

3: Are the terms of the master franchise similar to that of individual franchisee agreements in New Zealand?

4: What number of outlets do you see in Dubai?

5: Are customers likely to be locals or expat kiwis/Aussies/Brits etc?

6: How will the BF menu be different in such a unique country?

7: What experience does the Dubai company have being a food franchisor?

8 How is Burger Fuel Worldwide going in terms of revenue created for the Franchise company as a whole and are you on track?

9: How has your experience of your company now differ from what you thought it would be when you initially planned this listed franchising model, have things changed considerably?

10: Is Australia proving difficult to crack, given the amount of competition in Sydney?

11: How has the current credit crises affected your business expansion, if at all, and is the associated economic slow down having any affect on store sales?

12: Finally, where do you see Burger Fuel being in 12 months?


I would appreciate your assistance in informing my readers. There is much google interest on our blog every time you guys have a press release and we have had a handful of Dubai hits today, just as a matter of interest.

Regards, Darren



Josef's answer to my questions

Hello Darren

To paraphrase your own comments about BurgerFuel and me – “Go Figure”.
All the best.

All I can say is it would have been nice to hear some detail about the Dubai deal and where his company might be heading and how it was doing.

My questions were really stimulated by the company and its big leap right across to the other side of the world before being properly established outside New Zealand, in their first overseas market, Australia.

I felt that his investors might like to know the finer points of this move.

As I said above, Josef was very accommodating before the Burger Fuel IPO and I was expecting the same sort of candidness as the company progressed.

I realise his curt response maybe motivated by some of my criticism but after all it is only my opinion and therefore his side of the story would at least balance things.

Nevertheless I still wish him and his company well and hope his lovely burgers(minus the bacon) take off in Dubai.



Burger Fuel @ Share Investor Blog

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c Share Investor 2008

Burger Fuel cooks up a Dubai deal

They will be eating Burger Fuel burgers in Dubai soon, thanks to Burger Fuel Worldwide[BFW] management signing a Master franchise agreement with Dubai based Al Khayyat Investment Group Investments LLC - a holding group with diverse business interests ranging from multinational companies, automotive, retail, schooling, leasing and real estate interests.




Related links

Al Khayyat Group
NZX Announcement NBR: Burger Fuel signs franchise deal in Dubai YAHOO:Burger Fuel moves to Dubai
Burgerfuel website

It will be interesting to see the terms of the agreement, presumably it will be similar to the individual franchise agreements operated in New Zealand, Burger Fuel's home. If the Arab franchisees plunck their oil money down and really go for it, then possible investors in Burger Fuel here may get a better picture on how successful the Burger Fuel Franchise operator will fare.

Since the listed company will derive its income from ongoing royalties, currently too small to make any profit on overheads, the development of a larger group of stores will be a good indicator of the company and its long term future.

Personally, I'm still a little skeptical as to why Josef Roberts, executive director of Burger Fuel, and his fellow directors may have leaped so far across the world with their concept before developing it more fully and profitably in Australia.

Two company owned stores in Sydney just isn't a good indicator for future success outside the Australasian market.

I have so many questions about this move I have made a request to Josef ,via email , to flesh out some of the detail of today's announcement. I'm curious as to whether the Dubai company made the first move or if it was Burger Fuel's initiative.

I know there is plenty of interest about this company because every bit of news about Burger Fuel is googled incessantly, this site got alot of BF related traffic today, including a handful from Dubai, possibly kiwi ex pats.

Save for more positive concrete numbers or an indicator that things are improving financially and that the Franchisor business model will work with this type of high end food business, I clearly remain negative on the company when it comes to its present valuation of just under NZ $30 million.

Some questions need to be answered to reassure investors that management are heading in the right direction, given today's surprise announcement.

Hopefully, even though I have been critical of his baby, Josef will return my email. He has been great so far.

Burger Fuel shares were untraded at closing today, which isn't unusual. They last traded April 29 @ 45c.


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Discuss BFW @ Share Investor Forum - Register free


c Share Investor 2008